Correlation Between STRATA Skin and Nortech Systems

Can any of the company-specific risk be diversified away by investing in both STRATA Skin and Nortech Systems at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining STRATA Skin and Nortech Systems into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between STRATA Skin Sciences and Nortech Systems Incorporated, you can compare the effects of market volatilities on STRATA Skin and Nortech Systems and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in STRATA Skin with a short position of Nortech Systems. Check out your portfolio center. Please also check ongoing floating volatility patterns of STRATA Skin and Nortech Systems.

Diversification Opportunities for STRATA Skin and Nortech Systems

-0.36

Correlation Coefficient

STRATA Skin  Nortech Systems

Very good diversification

The 3 months correlation between STRATA and Nortech is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding STRATA Skin Sciences and Nortech Systems Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nortech Systems and STRATA Skin is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on STRATA Skin Sciences are associated (or correlated) with Nortech Systems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nortech Systems has no effect on the direction of STRATA Skin i.e., STRATA Skin and Nortech Systems go up and down completely randomly.

Pair Corralation between STRATA Skin and Nortech Systems

Given the investment horizon of 90 days STRATA Skin Sciences is expected to under-perform the Nortech Systems. But the stock apears to be less risky and, when comparing its historical volatility, STRATA Skin Sciences is 1.49 times less risky than Nortech Systems. The stock trades about -0.06 of its potential returns per unit of risk. The Nortech Systems Incorporated is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,061  in Nortech Systems Incorporated on September 27, 2024 and sell it today you would earn a total of  14.00  from holding Nortech Systems Incorporated or generate 1.32% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

STRATA Skin Sciences  vs.  Nortech Systems Incorporated

STRATA Skin Sciences

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days STRATA Skin Sciences has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy forward-looking signals, STRATA Skin is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Nortech Systems

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nortech Systems Incorporated has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with STRATA Skin and Nortech Systems

The main advantage of trading using opposite STRATA Skin and Nortech Systems positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if STRATA Skin position performs unexpectedly, Nortech Systems can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Nortech Systems will offset losses from the drop in Nortech Systems' long position.

The idea behind STRATA Skin Sciences and Nortech Systems Incorporated pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

Check out your portfolio center.

Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.